The privilege of the shale boom in the US has been on the chemical industry materials and cost of the energy. A huge portion of the natural gas production is used by the petrochemical industry, where natural gas liquids (NGLs) are used as fuel and feedstock.
Ethane, propane, and butane are natural gas and are used for the petrochemical industry. Ethane and propane are also the primary feedstocks used in the United States to produce ethylene. According to Hefley & Wang, Ethylene is both a key material in the plastics and one of the world’s most common chemical which is using in the industry (Hefley & Wang, 2014). On behalf of the cheaper prices of gas in comparison with petroleum and feedstock a pivot to the gas in US chemical industry started.
PWC Report argument is that shale gas production has paved the way for increasing in ethylene-based capacity; this would yield a decline in chemicals pricing, based on that report, 90% of all used manufactured products are enjoying the lower chemical prices; this would lead to a comparative advantage in favor of the United States. Furthermore, in this case chemical products may become a substitute for more expensive materials, such as metals, glass, wood, leather, and textiles (PWC, 2012).
The report concluded relatively simple products such as toothpaste tubes, disposable medical syringes, or pens that can be produced on high-speed lines with robotics…in the electronic device industry…such as touch-sensitive screens, higher-strength films, mobility devices, and miniaturized components would be more cheaper with extracted materials of shale gas (ibid).
Shale development simultaneously helps decrease the cost of the raw materials and energy needed for the chemical companies. The PWC report stated the price of natural gas in the US has declined from $12.50/MBTU in 2008 to approximately $3.00/MBTU in 2012 and the more decline is expectable (ibid). Hence, in the US, investment in the chemical industry would increase ethylene production capacity by 33% (ibid).
As it could be seen in the below figure US’ natural gas is converted into four types of gas; Propane, Butane, Ethane, and Methane. Ethylene which is made of Ethane turns into many other materials. Polyethylene Glycol which is made and extracted from ethylene and ethane is the basic material for most of the commodities in the human life and at the end a significant and vital for variety of production in the chemical industry. Ethylene is the most important chemical in terms of volume and value. It seems under the influence of the natural gas which is extracted from shale gas of the US chemical industry, in comparison with other countries would gain a comparative advantage situation.
Krupnick et al, in their research (2013) stated natural gas has capability to be converted into methanol or ethanol, both of them can be combined with gasoline in various fractions to create an alternative fuel (Krupnick, Wang, and Wang, 2013). They said these blends are used by the 10 million flexible fuel vehicles in the United States (ibid). On behalf of the decreasing in the price of natural gas, the prices of polyethylene and ethylene glycol would decrease as well (ibid).
According to, Pirog and Ratner (2012) natural gas is also used in producing ammonia, which is used as the primary source in most nitrogen fertilizers and in many finished phosphate fertilizers (Pirog & Ratner, 2012). Shale development bestirs steel production in two ways as well: The higher demand for drilling equipment and the decrease in the operating cost due to cheaper natural gas (ibid).
It seems shale industry granted the US chemicals industry a comparative advantage domestically and globally, Not only shale gas is a source of fuel for economy but also throughout of GSGI project it can be spread globally and be a capability for using as a tool Vis-a-Vis gas owners like Iran and Russia.
Ali Hossein Torabi, MA in North American Studies, email@example.com
The Energy and Climate Change Committee. (2013). The Impact of Shale Gas on Energy Markets. london: www.parliament.uk/ecc.
Alan Krupnick, Zhongmin Wang, and Yushuang Wang. (2013). Sector Effects of the Shale Gas Revolution in the United States. © 2013 Resources for the Future.
PwC. (2012). Shale gas Reshaping the US chemicals industry. www.pwc.com/us/chemicals.
Robert Pirog & Michael Ratner . (2012). Natural Gas in the U.S Economy: opportunities for growth. Washington: CRS Report for Congress, www.crs.gov.
William Hefley & Yongsheng Wang. (2014). Economics of Unconventional Shale Gas Development: Case. Springer.